Author: Kenley Scott
Kenley Scott is a senior equity analyst and sector strategist covering the APAC region and the Energy sector. He is a member of the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets. Kenley also writes the Global Sector Summary, part of the Sector Strategy service, which identifies emerging sector strength and weakness across 46 countries every week. After working as a commodities broker, Kenley joined the firm in July 2006. He has a B.S. in Statistics from the University of California, Riverside and also holds a Series 65 securities license.
O’Neil Energy/Material Weekly
Key sector news for the week ending September 12:
- Shares of our FL-name InPost (INPW.NL), a Polish logistics company, fell 7% on September 11 after its stakeholder Advent International offered to sell its 20M shares (~4% stake) for €376M at a price of €17 per share. After the sale, Advent’s stake in the company will drop to 11%, with the remaining shares subject to a 60-day lock-up period. The shares were sold at a 7.6% discount to Tuesday’s closing price and settlement is expected by September 13. The stock pulled back after breaking out of a stage-two consolidation base. Look for support along its 10-DMA (€17.01), followed by its 21-DMA (€16.5).
- Following the U.S. Presidential debate, most of the solar and the renewable stocks in the U.S. are rallying. The stocks have been pricing in potential rollback in some of the IRA benefits. Investors are discounting expected growth for these stocks.
- FSLR: The stock retook its 50-DMA on above average volume and is forming a base. It is trading 22% off its 52-week high. It has a strong RS Rating of 89 and an Acc/Dist Rating of B-.
- RUN: The stock is breaking out after a long-term downtrend. It retook its 50-DMA and is trading 14% off its 52-week high. RS line is in an uptrend, with an RS Rating of 95 and an Acc/Dist Rating of B+.
- AMRC: The stock retook its 50-DMA and is breaking out of a stage-one cup-with-handle base and is actionable here.
- NEE: The stock broke out of a stage-one flat base and is actionable here. RS line is in an uptrend, with a strong RS Rating of 90 and an Acc/Dist Rating of B-.
- Contemporary Amperex Technology Co. (CATL), a Chinese battery giant, curtailed production
at its Jiangxi operation, a key lithium mine. This could decrease China’s lithium carbonate production by 8%. Shares of lithium producers like ALB, SQM, and GANL.HK gained sharply as lithium prices rose, but this could be just an oversold bounce. - Oil prices continued to see sharp selloff, with Brent crude stabilizing in the $70–71/barrel range for the first time in over two years, driven by concerns regarding slowing demand in the U.S. and China.
- Brent has dropped nearly 20% this quarter amid an increase in supply and weaker market conditions. OPEC+ has delayed an output hike, but investors worry about surplus barrels returning by 2025.
- Shares of most oil producers and other associated service providers fell in line with the oil prices.
- Shares of Tata Power (TTP.IN) were up 6% on September 10 after its subsidiary, TP Solar, began commercial production at India’s largest solar cell plant. The 2 GW capacity, expected to double in the next 4–6 weeks, enhances Tata Power’s domestic solar component manufacturing capabilities. The facility uses advanced TOPCon and Mono Perc technologies and will support the company’s ongoing projects. Tata Power invested $537M in the plant, aiming for future expansion.
- The stock retook support along its 50-DMA and is forming the right side of a stage-two six-week flat base, with the pivot 7% away. RS line is recovering, with a poor RS Rating of 49 and an Acc/Dist Rating of C.
- CS Wind (CTW.KR) has partnered with Dong Tam Vietnam to develop one of the largest wind power equipment production factories globally. With an initial investment of $200M, the factory will produce wind towers and energy materials for global markets. The equipment will be imported and exported through Long An International Port, handling 150K–200K tons annually. This project will strengthen Vietnam’s wind power supply chain and its competitiveness internationally. The stock bounced off its 50- and 200-DMA and is forming the right side of a stage-one 37-week consolidation base with the pivot 9% away. RS line is in an uptrend, with strong RS Rating of 92 and Acc/Dist Rating of A-.
Global Sector Strategy
Using the U.S. 10-year Treasury minus the U.S. 13-week Treasury, below is the yield curve history going back to 1962. The orange shaded areas indicate period when the
S&P 500 fell at least 20% from highs, with the index’s “peak” to “trough” weeks noted.
O’Neil Energy/Material Weekly
Northern Star (NST.AU) – $12B market cap – Technicals: The stock is forming the right side of a stage-one 19-week cup base, with
pivot 6% away. The stock has been under accumulation for the past two weeks, with an Acc/Dist Rating of B and Up/Down Volume
ratio of 1.3. RS line is in an uptrend, with a strong RS Rating of 78. It has a mixed fundamental profile, with an EPS Rank 53 and SMR
Rating of B.
Global Sector Strategy
Beginning in 2020 with the extraordinary situation because of COVID-19, the market multiple rose (still much lower EPS) as yields also began to rise from the lows. Also, in 2023, despite a rising yield, the multiple actually rose a bit which can be attributed to the dominant mega-cap performance throughout the year. But, most recently, the inverse relationship is back on track. Since late 2023, the market multiple has risen from ~23x to an estimated 29x (GAAP ratio using trailing 12 months of earnings. Meanwhile, the 10-year is down from a high of 5% to 3.81% at the close of last week.
O’Neil Energy/Material Weekly
Interglobe Aviation (VGA.IN) – $20B market cap – Technicals: The stock is forming the right side of a stage-one flat base and is
trading 3% below the pivot price of INR 4,610. Fundamental profile: EPS Rank 33 due to the decline in profitability between FY20–23.
Returned to profitability in FY24 driven sharp margin expansion. Technical profile: Good money flows with an Up/Down Volume ratio of
1 and an Acc/Dist Rating of B-. RS line is in a long-term uptrend although it has consolidated over the last three months.
Global Sector Strategy
Last week, the Nasdaq bounced sharply after very briefly trading below its 200-DMA on an intraday basis in the prior week. It is now back in the upper half of the range since beginning to correct in July. At 6% off highs, it is still potentially in the midst of a longer consolidation but has emerged out of an immediate danger zone. If it is able to shake off the violent pullback and make its way back to highs without undercutting lows (and the 200-DMA), it would be historically exceptional from the following measure. In the 55-year history of the index, it has corrected >10% from highs but maintained above the 200-DMA many times. However, it has only corrected >15% from highs while maintaining above the 200-DMA one other time. This occurred in mid-1999 as the index began accelerating upward. A second time, in late 1997, it came close to doing so but did trade below the 200-DMA for two days. Here is a comparison of the three instances, including the most recent 16% pullback.
O’Neil Energy/Material Weekly
Adnoc Drilling Company (AD1.AE) – $20B market cap – Technicals: The stock is trading in the pivot range of AED 4.51–4.74 after
breaking out of a stage-one cup-with-handle base. Fundamental profile: EPS Rank 89 and Composite Rating of 98. Best possible
SMR Rating of A, driven by expanding margins and improving ROE and sales.. Double-digit earnings growth estimates for FY24 and
FY25. Strong earnings stability with three- and five-year stability factors below 10.
O’Neil Energy/Material Weekly
Nextera Energy (NEE) – $159B market cap – Technicals: The stock is forming the right side of a stage-one flat base, with the pivot
3% away, on the daily chart. On the weekly chart, it is forming a multi-year consolidation base and trading 18% off its pivot. RS line is
in an uptrend, with a strong RS Rating of 90. Mixed technical profile: Acc/Dist Rating of C+ and Up/Down Volume ratio 1.3. Strong
fundamental profile: EPS Rank 85 and SMR Rating of B.
Global Sector Strategy
In terms of intermediate rallies and corrections, here are the averages on the Dow within both bull and bear markets, going all the way back to 1900. Both average/median up and down legs have been more tame than historically. The Dow has not yet had a >10% pullback in one leg instead seven pullbacks of 5–9%. Of course, the Nasdaq has been more volatile, with two pullbacks of >10%, including the current correction.
